US SUPREME COURT FAILS TO CURTIAL IRS WHISTLEBLOWER CLAIM

This past April, the United States Supreme Court announced its decision that it would not review the case of Murphy v. IRS. Consequently, the IRS can continue to tax damages awarded to victims of whistleblower retaliation and other civil rights violations — even though such damages are not income. Under previous law, whistleblowers that were awarded significant compensation received those funds “tax free’. This law was consistent with earlier court decisions, which stated that compensation for whistleblowers was not income and, therefore, any tax on a whistle blower”s damages violated the United States Constitution.

Unfortunately, because the Supreme Court decided not to hear the Murphy case, whistleblowers and victims of civil rights violations will have to personally fight the IRS in its taxation claims.

Fortunately, a bill is pending in Congress entitled Civil Rights Tax Relief Act of 2007 (“CRTRA’). This legislation would amend the tax code to end the improper and unfair taxation of whistleblower damages as well as other damages awarded to individuals who have suffered unlawful civil right violations and discrimination in the workplace. Hopefully, this bill will get some traction in that it is supported by both employers and employees and has unusually broad bipartisan support from members of Congress.

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